ACUSHNET HOLDINGS CORP., 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Entity Registrant Name Acushnet Holdings Corp.    
Entity Central Index Key 0001672013    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Emerging Growth Company false    
Entity Small Business false    
Entity Common Stock, Shares Outstanding   75,029,111  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Shell Company false    
Entity Public Float     $ 827.3
v3.10.0.1
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets    
Cash and restricted cash ($8,436 and $13,086 attributable to the variable interest entity (VIE)) $ 31,014 $ 47,722
Accounts receivable, net 186,114 190,851
Inventories ($9,658 and $13,692 attributable to the VIE) 361,207 363,962
Other assets 85,666 84,541
Total current assets 664,001 687,076
Property, plant and equipment, net ($11,615 and $10,240 attributable to the VIE) 228,388 228,922
Goodwill ($32,312 and $32,312 attributable to the VIE) 209,671 203,403
Intangible assets, net 478,257 481,234
Deferred income taxes 78,028 99,437
Other assets ($2,593 and $2,738 attributable to the VIE) 33,276 33,833
Total assets 1,691,621 1,733,905
Current liabilities    
Short-term debt 920 20,364
Current portion of long-term debt 35,625 26,719
Accounts payable ($6,882 and $10,587 attributable to the VIE) 86,045 92,759
Accrued taxes 38,268 34,310
Accrued compensation and benefits ($1,634 and $780 attributable to the VIE) 77,181 80,189
Accrued expenses and other liabilities ($3,462 and $2,719 attributable to the VIE) 56,828 52,442
Total current liabilities 294,867 306,783
Long-term debt and capital lease obligations 346,953 416,970
Deferred income taxes 4,635 9,318
Accrued pension and other postretirement benefits ($794 and $1,908 attributable to the VIE) 102,077 130,160
Other noncurrent liabilities ($4,831 and $4,689 attributable to the VIE) 16,105 16,701
Total liabilities 764,637 879,932
Commitments and contingencies (Note 23)
Shareholders' equity    
Common stock, $0.001 par value, 500,000,000 shares authorized; 74,760,062 and 74,479,319 shares issued and outstanding 75 74
Additional paid-in capital 910,890 894,727
Accumulated other comprehensive loss, net of tax (89,039) (81,691)
Retained earnings 72,946 8,199
Total equity attributable to Acushnet Holdings Corp. 894,872 821,309
Noncontrolling interests 32,112 32,664
Total shareholders' equity 926,984 853,973
Total liabilities and shareholders' equity $ 1,691,621 $ 1,733,905
v3.10.0.1
CONSOLIDATED BALANCE SHEETS (Parentheticals) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Cash and restricted cash $ 31,014 $ 47,722
Inventories 361,207 363,962
Property, plant and equipment, net 228,388 228,922
Goodwill 209,671 203,403
Other assets 33,276 33,833
Accounts payable 86,045 92,759
Accrued compensation and benefits 77,181 80,189
Accrued expenses and other liabilities 56,828 52,442
Accrued pension and other postretirement benefits 102,077 130,160
Other noncurrent liabilities $ 16,105 $ 16,701
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 74,760,062 74,479,319
Common stock, shares outstanding (in shares) 74,760,062 74,479,319
VIE    
Cash and restricted cash $ 8,436 $ 13,086
Inventories 9,658 13,692
Property, plant and equipment, net 11,615 10,240
Goodwill 32,312 32,312
Other assets 2,593 2,738
Accounts payable 6,882 10,587
Accrued compensation and benefits 1,634 780
Accrued expenses and other liabilities 3,462 2,719
Accrued pension and other postretirement benefits 794 1,908
Other noncurrent liabilities $ 4,831 $ 4,689
v3.10.0.1
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Net sales $ 1,633,721 $ 1,560,258 $ 1,572,275
Cost of goods sold 791,370 758,401 773,275
Gross profit 842,351 801,857 799,000
Operating expenses:      
Selling, general and administrative 611,883 578,289 600,092
Research and development 51,489 47,241 48,126
Intangible amortization 6,644 6,499 6,608
Restructuring charges 0 0 1,673
Income from operations 172,335 169,828 142,501
Interest expense, net (Note 19) 18,402 15,709 49,908
Other expense, net 3,629 2,443 3,371
Income before income taxes 150,304 151,676 89,222
Income tax expense 47,232 48,475 39,707
Net income 103,072 103,201 49,515
Less: Net income attributable to noncontrolling interests (3,200) (4,506) (4,503)
Net income attributable to Acushnet Holdings Corp. 99,872 98,695 45,012
Dividends earned by preferred shareholders 0 0 (11,576)
Allocation of undistributed earnings to preferred shareholders 0 0 (10,247)
Net income attributable to common shareholders - basic 99,872 98,695 23,189
Adjustments to net income for dilutive securities 0 0 16,475
Net income attributable to common shareholders - diluted $ 99,872 $ 98,695 $ 39,664
Net income per common share attributable to Acushnet Holdings Corp.:      
Basic (in dollars per share) $ 1.34 $ 1.33 $ 0.74
Diluted (in dollars per share) 1.32 1.32 0.62
Cash dividends declared per common share (in dollars per share) $ 0.52 $ 0.48 $ 0.00
Weighted average number of common shares:      
Basic (in shares) 74,766,176 74,399,836 31,247,643
Diluted (in shares) 75,472,342 74,590,999 64,323,742
v3.10.0.1
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 103,072 $ 103,201 $ 49,515
Other comprehensive income (loss)      
Foreign currency translation adjustments (11,971) 26,964 (14,656)
Cash flow derivative instruments      
Unrealized holding gains (losses) arising during period 6,222 (15,558) 7,014
Reclassification adjustments included in net income 1,886 (1,329) (5,194)
Tax benefit (expense) (1,668) 4,072 (451)
Cash flow derivative instruments, net 6,440 (12,815) 1,369
Available-for-sale securities      
Unrealized holding gains arising during period 0 150 51
Tax benefit (expense) 0 35 (19)
Available-for-sale securities, net 0 185 32
Pension and other postretirement benefits      
Pension and other postretirement benefits adjustments 5,690 (6,889) (16,072)
Tax benefit (expense) (1,375) 1,698 5,727
Pension and other postretirement benefits adjustments, net 4,315 (5,191) (10,345)
Total other comprehensive income (loss) (1,216) 9,143 (23,600)
Comprehensive income 101,856 112,344 25,915
Less: Comprehensive income attributable to noncontrolling interests (3,114) (4,524) (4,563)
Comprehensive income attributable to Acushnet Holdings Corp. $ 98,742 $ 107,820 $ 21,352
v3.10.0.1
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in Thousands
12 Months Ended
Dec. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Dec. 31, 2016
USD ($)
Cash flows from operating activities      
Net income $ 103,072 $ 103,201 $ 49,515
Adjustments to reconcile net income to cash provided by (used in) operating activities      
Depreciation and amortization 40,496 40,871 40,834
Unrealized foreign exchange (gain) loss 3,960 (4,028) (2,347)
Amortization of debt issuance costs 1,409 1,321 3,378
Amortization of discount on bonds payable 0 0 3,963
Change in fair value of common stock warrants 0 0 6,112
Share-based compensation 18,563 15,285 14,494
Loss on disposals of property, plant and equipment 128 912 170
Deferred income taxes 15,541 21,272 7,849
Changes in operating assets and liabilities      
Accounts receivable 571 (2,592) 12,630
Inventories 805 (28,372) (2,377)
Accounts payable (5,789) 974 1,968
Accrued taxes 4,311 (10,283) 14,666
Other assets and liabilities (19,334) (165,598) (34,016)
Interest due to related parties 0 0 (12,570)
Cash flows provided by (used in) operating activities 163,733 (27,037) 104,269
Cash flows from investing activities      
Additions to property, plant and equipment (32,801) (18,845) (19,175)
Business acquisitions, net of cash acquired (16,902) 0 0
Cash flows used in investing activities (49,703) (18,845) (19,175)
Cash flows from financing activities      
Proceeds (repayment) of short-term borrowings, net (17,742) (25,548)  
Proceeds (repayment) of short-term borrowings, net     747
Proceeds from delayed draw term loan A facility 0 100,000 0
Repayment of delayed draw term loan A facility (40,625) (5,000) 0
Repayment of term loan A facility (21,094) (18,750) (4,688)
Proceeds from term loan A facility 0 0 375,000
Repayment of senior term loan facility 0 0 (30,000)
Repayment of secured floating rate notes 0 0 (375,000)
Proceeds from exercise of common stock warrants 0 0 34,503
Repayment of bonds 0 0 (34,503)
Debt issuance costs (381) 0 (6,606)
Dividends paid on common stock (39,057) (35,744) 0
Dividends paid on Series A redeemable convertible preferred stock 0 0 (17,316)
Dividends paid to noncontrolling interests (7,350) (4,800) (4,800)
Payment of employee restricted stock tax withholdings (2,634) (903) 0
Cash flows provided by (used in) financing activities (128,883) 9,255 (62,663)
Effect of foreign exchange rate changes on cash (1,855) 5,209 (2,425)
Net increase (decrease) in cash (16,708) (31,418) 20,006
Cash and restricted cash, beginning of year 47,722 79,140 59,134
Cash and restricted cash, end of year 31,014 47,722 79,140
Supplemental information      
Cash paid for interest to related parties 0 0 36,753
Cash paid for interest to third parties 18,344 15,488 27,165
Cash paid for income taxes 27,389 35,949 16,589
Non-cash additions to property, plant and equipment 2,568 2,876 1,170
Dividend equivalents rights (DERs) declared not paid 882 801 0
Non-cash conversion of Series A redeemable convertible preferred stock 0 0 131,036
Non-cash conversion of convertible notes 0 0 362,489
Non-cash conversion of common stock warrants $ 0 $ 0 $ 28,996
v3.10.0.1
CONSOLIDATED STATEMENTS OF REEDEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY - USD ($)
shares in Thousands
Total
Total Shareholders' Equity Attributable to Acushnet Holdings Corp.
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Earnings (Deficit)
Noncontrolling Interests
Beginning balance at Dec. 31, 2015 $ 193,506,000 $ 160,251,000 $ 22,000 $ 309,110,000 $ (67,234,000) $ (81,647,000) $ 33,255,000
Beginning balance (in shares) at Dec. 31, 2015     21,821        
Changes in stockholders' equity              
Net income 49,515,000 45,012,000       45,012,000 4,503,000
Other comprehensive income (loss) (23,600,000) (23,600,000)     (23,600,000)    
Share-based compensation 14,494,000 14,494,000   14,494,000      
Issuance of common stock 63,499,000 63,499,000 $ 3,000 63,496,000      
Issuance of common stock (in shares)     3,105        
Conversion of redeemable convertible preferred stock 131,036,000 131,036,000 $ 16,000 131,020,000      
Conversion of redeemable convertible preferred stock (in shares)     16,542        
Conversion of convertible notes 362,489,000 362,489,000 $ 33,000 362,456,000      
Conversion of convertible notes (in shares)     32,626        
Dividends paid on Series A redeemable convertible preferred stock (17,316,000) (17,316,000)       (17,316,000)  
Dividends and dividend equivalents declared 0            
Dividends declared to noncontrolling interests (4,800,000)           (4,800,000)
Ending balance at Dec. 31, 2016 768,823,000 735,865,000 $ 74,000 880,576,000 (90,834,000) (53,951,000) 32,958,000
Ending balance (in shares) at Dec. 31, 2016     74,094        
Beginning balance at Dec. 31, 2015 $ 131,036,000            
Beginning balance (in shares) at Dec. 31, 2015 1,838            
Redeemable Convertible Preferred Stock              
Conversion of redeemable convertible preferred stock $ (131,036,000)            
Conversion of redeemable convertible preferred stock (in shares) (1,838)            
Ending balance at Dec. 31, 2016 $ 0            
Ending balance (in shares) at Dec. 31, 2016 0            
Changes in stockholders' equity              
Net income $ 103,201,000 98,695,000       98,695,000 4,506,000
Other comprehensive income (loss) 9,143,000 9,143,000     9,143,000    
Share-based compensation 15,054,000 15,054,000   15,054,000      
Conversion of convertible notes 0            
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 17) (903,000) (903,000)   (903,000)      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 17) (in shares)     385        
Dividends and dividend equivalents declared (36,545,000) (36,545,000)       (36,545,000)  
Dividends declared to noncontrolling interests (4,800,000)           (4,800,000)
Ending balance at Dec. 31, 2017 853,973,000 821,309,000 $ 74,000 894,727,000 (81,691,000) 8,199,000 32,664,000
Ending balance (in shares) at Dec. 31, 2017     74,479        
Ending balance at Dec. 31, 2017 $ 0            
Ending balance (in shares) at Dec. 31, 2017 0            
Changes in stockholders' equity              
Acquisitions (Note 22) $ 3,598,000           3,598,000
Net income 103,072,000 99,872,000       99,872,000 3,200,000
Other comprehensive income (loss) (1,216,000) (1,216,000)     (1,216,000)    
Share-based compensation 18,794,000 18,794,000   18,794,000      
Conversion of convertible notes 0            
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 17) (2,630,000) (2,630,000) $ 1,000 (2,631,000)      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 17) (in shares)     281        
Dividends and dividend equivalents declared (39,756,000) (39,756,000)       (39,756,000)  
Dividends declared to noncontrolling interests (7,350,000)           (7,350,000)
Ending balance at Dec. 31, 2018 926,984,000 $ 894,872,000 $ 75,000 $ 910,890,000 $ (89,039,000) $ 72,946,000 $ 32,112,000
Ending balance (in shares) at Dec. 31, 2018     74,760        
Ending balance at Dec. 31, 2018 $ 0            
Ending balance (in shares) at Dec. 31, 2018 0            
v3.10.0.1
Description of Business
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business
Description of Business
Acushnet Holdings Corp. (the “Company”), headquartered in Fairhaven, Massachusetts, is the global leader in the design, development, manufacture and distribution of performance-driven golf products. The Company has established positions across all major golf equipment and golf wear categories under its globally recognized brands of Titleist, FootJoy, Scotty Cameron and Vokey Design. Acushnet products are sold primarily to on-course golf pro shops and selected off-course golf specialty stores, sporting goods stores and other qualified retailers. The Company sells products primarily in the United States, Europe (primarily the United Kingdom, Germany, France and Sweden), Asia (primarily Japan, Korea, China and Singapore), Canada and Australia. Acushnet manufactures and sources its products principally in the United States, China, Thailand, the United Kingdom and Japan.
Acushnet Holdings Corp. was incorporated in Delaware on May 9, 2011 as Alexandria Holdings Corp., an entity owned by Fila Korea Co., Ltd. (“Fila Korea”), a leading sport and leisure apparel and footwear company which is a public company listed on the Korea Exchange, and a consortium of investors (the “Financial Investors”). Acushnet Holdings Corp. acquired Acushnet Company, its operating subsidiary, from Beam Suntory, Inc. (at the time known as Fortune Brands, Inc.) (“Beam”) on July 29, 2011.
On November 2, 2016, the Company completed an initial public offering of 19,333,333 shares of its common stock sold by selling stockholders at a public offering price of $17.00 per share. Upon the closing of the Company’s initial public offering, all remaining outstanding shares of the Company’s Series A redeemable convertible preferred stock (“Series A preferred stock”) were automatically converted into 11,556,495 shares of the Company’s common stock and the Company’s 7.5% convertible notes due 2021 (“convertible notes”) were automatically converted into 22,791,852 shares of the Company’s common stock. The underwriters of the Company’s initial public offering exercised their over-allotment option to purchase an additional 2,899,999 shares of common stock from the selling stockholders at the initial public offering price of $17.00 per share.
Following the pricing of the initial public offering, Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Korea, purchased from the Financial Investors on a pro rata basis 14,818,720 shares of the Company’s common stock, resulting in Magnus holding a controlling ownership interest in the Company’s outstanding common stock. The 14,818,720 shares of the Company’s common stock sold by the Financial Investors were received upon the automatic conversion of certain of the Company’s outstanding convertible notes (Note 10) and Series A preferred stock (Note 15). The remaining outstanding convertible notes and Series A preferred stock automatically converted into shares of the Company’s common stock prior to the closing of the initial public offering. 
On October 14, 2016, the Company effected a nine-for-one stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for its convertible notes, Series A preferred stock, and the exercise price for the common stock warrants and the strike price of stock-based compensation. Accordingly, all share and per share amounts for all periods presented in the accompanying consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the common stock warrant exercise price, and convertible notes and redeemable convertible preferred stock conversion ratios.
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of the Company, its wholly- owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current year presentation.
Revision of Previously Issued Financial Statements
During the fourth quarter of 2018, the Company determined that in 2011 it did not record a required deferred income tax liability on the difference between the book and tax basis of intangible assets resulting from the 2011 acquisition of Acushnet Company. This deferred tax liability should have been remeasured during the fourth quarter of 2017 based upon the change in tax rates resulting from the U.S. Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”). The Company has corrected these errors as a revision to the previously issued financial statements. The correction of these errors resulted in a decrease in income tax expense of $6.6 million, an increase in net income of $6.6 million, an increase in comprehensive income of $6.6 million and an increase in both basic and diluted net income per common share of $0.09 for the year ended December 31, 2017. The correction also resulted in a decrease in deferred income tax assets of $10.9 million, an increase in goodwill of $17.5 million, an increase in total assets of $6.6 million and an increase in total shareholders' equity of $6.6 million as of December 31, 2017. The errors also resulted in a decrease in deferred income tax assets of $17.5 million and an increase in goodwill of $17.5 million as of December 31, 2016, which has been revised in the related footnotes. The impact of this revision has been reflected throughout these financial statements, including the related footnotes, and is not material to the consolidated financial statements for the year ended December 31, 2017.
Use of Estimates
The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, shareholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its consolidated financial statements. Actual results could differ from those estimates.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of December 31, 2018 and 2017. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests
The ownership interest held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. The value attributable to the noncontrolling interests is presented on the consolidated balance sheets within shareholders' equity, separately from the equity attributable to the Company. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the consolidated statements of operations and consolidated statements of comprehensive income, respectively. The Company's less than wholly-owned subsidiaries include a VIE, as discussed above, and PG Professional Golf which was acquired on October 1, 2018 (Note 22).
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. As of December 31, 2018 and 2017, book overdrafts in the amount of $2.2 million and $2.9 million, respectively, were recorded in accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of December 31, 2018 and 2017, the amount of restricted cash included in cash and restricted cash on the consolidated balance sheet was $2.0 million and $2.3 million, respectively.
Concentration of Credit Risk and of Significant Customers
Financial instruments that potentially expose the Company to concentration of credit risk are cash and accounts receivable. Substantially all of the Company's cash deposits are maintained at large, creditworthy financial institutions. The Company's deposits, at times, may exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As part of its ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order to avoid any undue exposure. As of December 31, 2018 and 2017, the Company had $28.6 million and $44.7 million, respectively, in banks located outside the United States. The risk with respect to the Company's accounts receivable is managed by the Company through its policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out inventory method. The inventory balance, which includes material, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or slow moving inventory. The Company's allowance for obsolete or slow moving inventory contains estimates regarding uncertainties. Such estimates are updated each reporting period and require the Company to make assumptions and to apply judgment regarding a number of factors, including market conditions, selling environment, historical results and current inventory trends. See Note 5 for additional information.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets. Gains or losses resulting from disposals are included in income from operations. Betterments and renewals, which improve and extend the life of an asset, are capitalized. Maintenance and repair costs are expensed as incurred.
Estimated useful lives of property, plant and equipment asset categories were as follows:
Buildings and improvements
15
-
40 years
Machinery and equipment
3
-
10 years
Furniture, fixtures and computer hardware
3
-
10 years
Computer software
1
-
10 years
 
Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.
Certain costs incurred in connection with the development of the Company's internal-use software are capitalized. Internal-use software development costs are primarily related to the Company's enterprise resource planning system. Costs incurred in the preliminary stages of development are expensed as incurred. Internal and external costs incurred in the application development phase, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. Costs such as maintenance and training are expensed as incurred. The capitalized internal-use software costs are included in property, plant and equipment and once the software is placed into service are amortized over the estimated useful life which ranges from three to ten years. See Note 6 for additional information.
Long-Lived Assets
A long-lived asset (including amortizing intangible assets) or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the asset or asset group. The cash flows are based on the best estimate of future cash flows derived from the most recent business projections. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset's or asset group's carrying value over its fair value. Fair value is determined based on discounted expected future cash flows on a market participant basis. Any impairment charge would be recognized within operating expenses as a selling, general and administrative expense.
The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are not amortized but instead are measured for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying amount of the asset may be impaired.
Goodwill is assigned to reporting units for purposes of impairment testing. A reporting unit may be the same as an operating segment or one level below an operating segment. For purposes of assessing potential impairment, the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company records goodwill impairment in the amount of the excess of a reporting unit’s carrying value over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The fair value of the reporting units is determined using the income approach. The income approach uses a discounted cash flow analysis which involves applying appropriate discount rates to estimated future cash flows based on forecasts of sales, costs and capital requirements.
Purchased intangible assets other than goodwill are amortized over their useful lives unless those lives are determined to be indefinite. Certain of the Company's trademarks have been assigned an indefinite life as the Company currently anticipates that these trademarks will contribute to its cash flows indefinitely. Indefinite-lived trademarks are reviewed for impairment annually and may be reviewed more frequently if indicators of impairment are present. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. The Company measures the fair value of its trademarks using the relief-from-royalty method, which estimates the present value of royalty income that could be hypothetically earned by licensing the brand name to a third party over the remaining useful life. See Note 7 for additional information.
The Company performs its annual impairment tests in the fourth quarter of each fiscal year. During the years ended December 31, 2018, 2017 and 2016, no impairment charges were recorded to goodwill or indefinite-lived intangible assets.
Deferred Financing Costs
The Company defers costs directly associated with acquiring third-party financing. These deferred costs are amortized as interest expense over the term of the related indebtedness. Deferred financing costs associated with the revolving credit facilities are included in other current and noncurrent assets and deferred financing costs associated with all other indebtedness are netted against long-term debt and capital lease obligations on the consolidated balance sheet. See Note 10 for additional information.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s derivative instrument assets and liabilities are carried at fair value determined according to the fair value hierarchy described above (Note 11 and 12). The carrying value of accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term nature of these assets and liabilities. The Company adopted the fair value measurement disclosures for nonfinancial assets and liabilities, such as goodwill and indefinite-lived intangible assets.
In some instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and uses a midpoint approach on bid and ask prices from financial institutions to determine the reasonableness of these estimates. Assets and liabilities subject to this fair value valuation approach are typically classified as Level 2. See Note 12 for additional information.
Pension and Other Postretirement Benefit Plans
The Company provides U.S. and foreign defined benefit and defined contribution plans to certain eligible employees and postretirement benefits to certain retirees, including pensions, postretirement healthcare benefits and other postretirement benefits.
Plan assets and obligations are measured using various actuarial assumptions, such as discount rates, rate of compensation increase, mortality rates, turnover rates and health care cost trend rates, as determined at each year end measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rates, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. The determination of the discount rate is generally based on an index created from a hypothetical bond portfolio consisting of high-quality fixed income securities with durations that match the timing of expected benefit payments. The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon. Actual cost is also dependent on various other factors related to the employees covered by these plans. The effects of actuarial deviations from assumptions are generally accumulated and, if over a specified corridor, amortized over the remaining service period of the employees. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the related employees. The Company's actuarial assumptions are reviewed on an annual basis and modified when appropriate.
To calculate the U.S. pension and postretirement benefit plan expense in 2018 and 2017, the Company applied the individual spot rates along the yield curve that correspond with the timing of each future cash outflow for the benefit payments in order to calculate interest cost and service cost.  Prior to 2017, the service cost and interest cost components were determined using a single weighted-average discount rate. The change does not affect the measurement of the total benefit plan obligations, as the change in the service cost and interest cost offsets in the actuarial gains and losses recorded in other comprehensive income (loss). The Company changed to the new method to provide a more precise measure of service and interest cost by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company accounted for this change as a change in estimate prospectively beginning in 2017.  See Note 13 for additional information.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between consolidated financial statement carrying amounts and tax basis amounts at enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred income tax assets when it is more-likely-than-not that such assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company records liabilities for uncertain income tax positions based on the two step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future periods, changes in facts, circumstances, and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense and liability in the period in which such changes occur. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.
Beam has indemnified certain tax obligations that relate to periods during which Fortune Brands, Inc. owned Acushnet Company (Note 23). These estimated tax obligations are recorded in accrued taxes and other noncurrent liabilities, and the related indemnification receivable is recorded in other noncurrent assets on the consolidated balance sheet. Any changes in the value of these specifically identified tax obligations are recorded in the period identified in income tax expense and the related change in the indemnification asset is recorded in other expense, net on the consolidated statement of operations. See Note 14 for additional information.
On December 22, 2017, the U.S. enacted the 2017 Tax Act. The 2017 Tax Act contains a new law that subjects the Company to a tax on Global Intangible Low-Taxed Income (“GILTI”), beginning in 2018. GILTI is a tax on foreign income in excess of a deemed return on tangible assets of related foreign corporations. Companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI. The Company has elected to account for GILTI as a period cost.
Cost of Goods Sold
Cost of goods sold includes all costs to make products salable, such as inbound freight, purchasing and receiving costs, inspection costs and transfer costs. In addition, all depreciation expense associated with assets used to manufacture products and make them salable is included in cost of goods sold.
Product Warranty
The Company has defined warranties ranging from one to two years. Products covered by the defined warranty policies include all Titleist golf products, FootJoy golf shoes, and FootJoy golf outerwear. These product warranties generally obligate the Company to pay for the cost of replacement products, including the cost of shipping replacement products to its customers. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims, and the cost to replace or repair products under warranty. See Note 8 for additional information.
Advertising and Promotion
Advertising and promotional costs are included in selling, general and administrative expense on the consolidated statement of operations and include product endorsement arrangements with members of the various professional golf tours, media placement and production costs (television, print and internet), tour support expenses and point-of-sale materials. Advertising production costs are expensed as incurred. Media placement costs are expensed in the month the advertising first appears. Product endorsement arrangements are expensed based upon the specific provisions of player contracts. Advertising and promotional expense was $192.2 million, $192.7 million and $196.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Selling
Selling expenses including field sales, sales administration and shipping and handling costs are included in selling, general and administrative expense on the consolidated statement of operations. Shipping and handling costs included in selling expenses were $34.1 million, $32.5 million and $32.4 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Research and Development
Research and development expenses include product development, product improvement, product engineering, and process improvement costs and are expensed as incurred.
Foreign Currency Translation and Transactions
Assets and liabilities denominated in foreign currency are translated into U.S. dollars at the actual rates of exchange at the balance sheet date. Revenues and expenses are translated at the average rates of exchange for the reporting period. The related translation adjustments are recorded as a component of accumulated other comprehensive loss. Transactions denominated in a currency other than the functional currency are re-measured into functional currency with resulting transaction gains or losses recorded as selling, general and administrative expense on the consolidated statement of operations. Foreign currency transaction gain (loss) included in selling, general and administrative expense was a loss of $1.9 million, a gain of $4.1 million and a gain of $1.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Derivative Financial Instruments
All derivative instruments are recognized as either assets or liabilities on the consolidated balance sheet and are measured at fair value. If the derivative instrument is designated as a fair value hedge, the changes in the fair value of the derivative instruments and of the hedged item attributable to the hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive loss and are recognized in the consolidated statement of operations when the hedged item affects earnings. Any portion of the change in fair value that is determined to be ineffective is immediately recognized in earnings. Cash flows from derivative financial instruments and the related hedged transactions are included in cash flows from operating activities. See Note 11 for additional information.
Share-based Compensation
The Company has a share-based compensation plan for board of directors, officers, employees, consultants and advisors of the Company. All awards granted under the plan are measured at fair value at the date of the grant. The Company issues share-based awards with service-based vesting conditions and performance-based vesting conditions. Awards with service-based vesting conditions are amortized as expense over the requisite service period of the award, which is generally the vesting period of the respective award. For awards with performance-based vesting conditions, the measurement of the expense is based on the Company’s level of achievement of performance metrics as defined in the applicable award agreements. The Company accounts for forfeitures in compensation expense when they occur. See Note 17 for additional information.
Net Income per Common Share
Net income per common share attributable to Acushnet Holdings Corp. is calculated under the treasury stock method. Prior to the conversion of the redeemable convertible preferred shares to common stock in connection with the Company’s initial public offering in 2016, the Company applied the two-class method to calculate its basic and diluted net income per common share attributable to Acushnet Holdings Corp., as its redeemable convertible preferred shares were participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. Net income per common share available to Acushnet Holdings Corp. was determined by allocating undistributed earnings between holders of common shares and redeemable convertible preferred shares, based on the participation rights of the preferred shares. Basic net income per common share attributable to Acushnet Holdings Corp. was computed by dividing the net income available to Acushnet Holdings Corp. by the basic weighted-average number of common shares outstanding during the period. Diluted net income per common share attributable to Acushnet Holdings Corp. was computed by dividing the net income available to Acushnet Holdings Corp. after giving effect to the diluted securities by the weighted-average number of dilutive shares outstanding during the period. See Note 20 for additional information.
Recently Adopted Accounting Standards
Revenue from Contracts with Customers
On January 1, 2018, the Company adopted Accounting Standards Codification ("ASC") 606, "Revenue from Contracts with Customers" ("ASC 606") and all the related amendments (the “new revenue standard”) using the modified retrospective method. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to opening retained earnings (Note 3). The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Income Statement—Reporting Comprehensive Income
On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2018‑02, “Income Statement—Reporting Comprehensive Income (Topic 220) —Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” As a result of the adoption of the amendments in this update, the Company recorded a reclassification from accumulated other comprehensive loss, net of tax to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (Note 14). The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Financial Instruments—Recognition and Measurement
On January 1, 2018, the Company adopted ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01"). ASU 2016-01 supersedes the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and requires equity securities to be measured at fair value with changes in the fair value recognized through net income, among other items (Note 18). As a result of the adoption of the amendments in this update, the Company recorded a reclassification of unrealized gains of $2.1 million from accumulated other comprehensive loss, net of tax to retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
Compensation—Retirement Benefits
On January 1, 2018, the Company adopted ASU 2017‑07, “Compensation—Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” ("ASU 2017-07"). ASU 2017‑07 requires that an employer report the service cost component of net periodic pension and net periodic post retirement cost in the same line item as other compensation costs arising from services rendered by the employees during the period. It also requires the other components of net periodic pension and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization. As a result of the adoption of the amendments in this update, the Company recorded a reclassification of the non-service cost component of net periodic benefit cost of $3.5 million and $1.7 million from cost of goods sold and operating expenses to other expense, net on the consolidated statement of operations for the years ended December 31, 2017 and 2016, respectively (Notes 13 and 19). The adoption of this standard also resulted in the restatement of the Company's segment operating income for the years ended December 31, 2017 and 2016 (Note 21) and unaudited quarterly financial data for the quarter ended December 31, 2017 (Note 24).
Intangibles—Goodwill and OtherSimplifying the Test for Goodwill Impairment
On October 31, 2018, the Company adopted ASU 2017‑04, “Intangibles—Goodwill and Other: Simplifying the Test for Goodwill Impairment” ("ASU 2017-04"). ASU 2017‑04 removes the second step of the goodwill impairment test. Instead an entity will perform a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The adoption of this standard did not have an impact on the Company's assessment of goodwill impairment or its consolidated financial statements.
The Company also adopted the following standards during 2018, none of which had a material impact to the Company's financial statements or financial statement disclosures:
Standard
 
 
 
Effective Date
ASU 2017‑09
 
Compensation—Stock Compensation: Scope of Modification Accounting
 
January 1, 2018
ASU 2017‑01
 
Business Combinations: Clarifying the Definition of a Business
 
January 1, 2018
ASU 2016‑16
 
Income Taxes: Intra-Entity Transfers of Assets other than Inventory
 
January 1, 2018
ASU 2016‑15
 
Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments
 
January 1, 2018

Recently Issued Accounting Standards
Intangibles —Goodwill and Other —Internal-Use Software
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, "Intangibles —Goodwill and Other —Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract" ("ASU 2018-15"). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years ending after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
Defined Benefit Plans—Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820) —Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). The amendments in this update improve the effectiveness of fair value measurement disclosures. ASU 2018-13 is effective for fiscal years ending after December 15, 2019. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The amendments in this update expand and refine hedge accounting guidance and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 also simplifies the application of hedge accounting guidance, hedge documentation requirements and the assessment of hedge effectiveness. ASU 2017‑12 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued or made available for issuance. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
Leases
In February 2016, the FASB issued ASU 2016‑02, “Leases,” which will require lessees to recognize right-of-use assets and lease liabilities for leases which were formerly classified as operating leases. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Subsequent to ASU 2016-02, the FASB issued related ASUs, including ASU 2018-11, "Leases (Topic 842): Targeted Improvements", which provides an optional approach to initially apply the new lease guidance upon the adoption date, without adjusting the comparative periods presented. The Company adopted ASU 2016-02 on January 1, 2019, using the optional transition approach which allows for a cumulative effect adjustment in the period of adoption and will not restate prior periods. Although the Company is continuing to assess the potential impact this ASU will have on its consolidated balance sheet and related disclosures, it expects the adoption of this standard to result in the recognition of right-of-use assets and lease liabilities in the range of $40.0 million and $50.0 million. The Company does not expect a material impact to its consolidated statements of operations or cash flows.
v3.10.0.1
Revenue
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 605, "Revenue Recognition".
The Company recorded a net reduction to opening retained earnings of $1.6 million as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to a promotional holiday program. The impact of applying ASC 606 was an increase in net sales of $4.3 million and an increase in cost of sales of $2.3 million for the year ended December 31, 2018. Additionally, the Company reclassified the refund liability for expected returns from accounts receivable, net to accrued expenses and other liabilities and reclassified the value of inventory expected to be recovered related to sales returns from inventories to other assets as of December 31, 2018. The refund liability for expected returns was $9.8 million and $13.5 million as of December 31, 2018 and 2017, respectively. The value of inventory expected to be recovered related to sales returns was $5.7 million and $4.3 million as of December 31, 2018 and 2017, respectively. The adoption of ASC 606 did not have any other material impacts to the financial statements.
Accounting Policies
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of the Company's contracts have a single performance obligation to transfer products. Accordingly, the Company recognizes revenue when control of the products has been transferred to the customer, generally at the time of shipment or delivery of products, based on the terms of the contract and the jurisdiction of the sale. Revenue is recognized in an amount that reflects the consideration the Company expects to be entitled to in exchange for the products. Revenue is recognized net of allowances for discounts and sales returns. Sales taxes and other similar taxes are excluded from revenue.
Substantially all of the Company’s revenue is recognized at a point in time and relates to customers who are not engaged in a long-term supply agreement or any form of contract with the Company. Substantially all of sales are paid for on account with the majority of terms between 30 and 60 days, not to exceed one year.
Costs associated with shipping and handling activities, such as merchandising, are included in selling, general and administrative expenses as revenue is recognized. The Company has made an accounting policy election to account for shipping and handling activities that occur after control of the related good transfers as fulfillment activities instead of assessing such activities as performance obligations.
The Company reduces revenue by the amount of expected returns and records a corresponding refund liability in accrued expenses and other liabilities. The Company accounts for the right of return as variable consideration and recognizes a refund liability for the amount of consideration that it estimates will be refunded to customers. In addition, the Company recognizes an asset for the right to recover returned products in other assets on the consolidated balance sheets. Sales returns are estimated based upon historical rates of product returns, current economic trends and changes in customer demands as well as specific identification of outstanding returns.
Contract Balances
Accounts receivable, net, include amounts billed and currently due from customers. The amounts due are stated at their net estimated realizable value. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. The allowance includes amounts for certain customers where a risk of default has been specifically identified as well as a provision for customer defaults when it is determined the risk of some default is probable and estimable, but cannot yet be associated with specific customers. The assessment of the likelihood of customer defaults is based on various factors, including credit risk assessments, length of time the receivables are past due, historical experience, customer specific information available to the Company and existing economic conditions.
Customer Sales Incentives
The Company offers sales-based incentive programs to certain customers in exchange for certain benefits, including prominent product placement and exclusive stocking by participating retailers. These programs typically provide qualifying customers with rebates for achieving certain purchase goals. The rebates can be settled in the form of cash or credits or in the form of free product. The rebates which are expected to be settled in the form of cash or credits are accounted for as variable consideration. The estimate of the variable consideration requires the use of assumptions related to the percentage of customers who will achieve qualifying purchase goals and the level of achievement. These assumptions are based on historical experience, current year program design, current marketplace conditions and sales forecasts, including considerations of the Company's product life cycles.
The rebates which are expected to be settled in the form of product are estimated based upon historical experience and the terms of the customer programs and are accounted for as an additional performance obligation. Revenue will be recognized when control of the free products earned transfers to the customer at the end of the related customer incentive program, which generally occurs within one year. Control of the free products generally transfers to the customer at the time of shipment.
Practical Expedients and Exemptions
The Company expenses sales commissions when incurred because the amortization period is one year or less. These costs are recorded within selling, general and administrative expense on the consolidated statements of operations.
The Company has elected the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less.
Disaggregated Revenue
In general, the Company's business segmentation is aligned according to the nature and economic characteristics of its products and customer relationships and provides meaningful disaggregation of each business segment's results of operations. See Note 21 for the Company's business segment disclosures, as well as a further disaggregation of net sales by geographical area.
v3.10.0.1
Allowance for Doubtful Accounts
12 Months Ended
Dec. 31, 2018
Receivables [Abstract]  
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts
The activity related to the allowance for doubtful accounts was as follows:
(in thousands)
2018
 
2017
 
2016
Balance at beginning of year
$
9,975

 
$
12,255

 
$
12,363

Bad debt expense
(583
)
 
337

 
6,507

Amount of receivables written off
(1,873
)
 
(3,300
)
 
(6,315
)
Foreign currency translation
(247
)
 
683

 
(300
)
Balance at end of year
$
7,272

 
$
9,975

 
$
12,255


On September 14, 2016 Golfsmith International Holdings LP, one of the Company’s largest customers in the year ended December 31, 2016, announced that its U.S.‑based business, Golfsmith International Holdings, Inc., ("Golfsmith") commenced a Chapter 11 case under Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware, and its Canada‑based business, Golf Town Canada Inc. ("Golf Town"), commenced creditor protection proceedings under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice (Commercial List). The Company’s outstanding receivable related to Golfsmith and Golf Town was reserved for in full by the time of the bankruptcy filing and as of December 31, 2016 the portion related to Golfsmith had been written off.
v3.10.0.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories
Inventories
The components of inventories were as follows:
(in thousands)
December 31,
2018
 
December 31,
2017
Raw materials and supplies
$
71,068

 
$
72,342

Work-in-process
21,763

 
23,956

Finished goods
268,376

 
267,664

Inventories
$
361,207

 
$
363,962

v3.10.0.1
Property, Plant and Equipment, Net
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment, Net
Property, Plant and Equipment, Net
The components of property, plant and equipment, net were as follows:
(in thousands)
December 31,
2018
 
December 31,
2017
Land
$
14,515

 
$
14,618

Buildings and improvements
142,113

 
138,570

Machinery and equipment
160,707

 
148,999

Furniture, computers and equipment
36,405

 
32,783

Computer software
62,517

 
60,736

Construction in progress
19,999

 
13,586

Property, plant and equipment, gross
436,256

 
409,292

Accumulated depreciation and amortization
(207,868
)
 
(180,370
)
Property, plant and equipment, net
$
228,388

 
$
228,922


During the years ended December 31, 2018, 2017 and 2016, software development costs of $4.1 million, $3.1 million and $8.2 million were capitalized. Capitalized software development costs as of December 31, 2018, 2017 and 2016 consisted of software placed into service of $1.7 million, $2.4 million and $7.4 million, respectively, and amounts recorded in construction in progress of $2.4 million, $0.7 million and $0.8 million, respectively. Amortization expense on capitalized software development costs was $6.3 million, $6.4 million and $5.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Total depreciation and amortization expense related to property, plant and equipment was $32.2 million, $31.6 million and $31.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.
v3.10.0.1
Goodwill and Identifiable Intangible Assets, Net
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Identifiable Intangible Assets, Net
Goodwill and Identifiable Intangible Assets, Net
Goodwill allocated to the Company's reportable segments and changes in the carrying amount of goodwill were as follows:
(in thousands)
Titleist
Golf Balls
 
Titleist
Golf Clubs
 
Titleist
Golf Gear
 
FootJoy
Golf Wear
 
Other
 
Total
Balances at December 31, 2016
$
115,693

 
$
56,187

 
$
13,624

 
$
2,500

 
$
8,699

 
$
196,703

Foreign currency translation
3,941

 
1,914

 
464

 
85

 
296

 
6,700

Balances at December 31, 2017
119,634

 
58,101

 
14,088

 
2,585

 
8,995

 
203,403

Acquisitions (Note 22)
8,492

 

 

 
1,071

 

 
9,563

Foreign currency translation
(1,931
)
 
(949
)
 
(222
)
 
(43
)
 
(150
)
 
(3,295
)
Balances at December 31, 2018
$
126,195

 
$
57,152

 
$
13,866

 
$
3,613

 
$
8,845

 
$
209,671

 
Prior year information within the above table has been revised, see further discussion of the impact of these revisions included in Note 2 - Revision of Previously Issued Financial Statements.
The net carrying value by class of identifiable intangible assets was as follows:
 
Weighted
Average
Useful
Life (Years)
 
December 31, 2018
 
December 31, 2017
(in thousands)
 
Gross
 
Accumulated
Amortization
 
Net Book
Value
 
Gross
 
Accumulated
Amortization
 
Net Book
Value
Indefinite-lived:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
N/A
 
$
429,051

 
$

 
$
429,051

 
$
428,100

 
$

 
$
428,100

Amortizing:
 
 
 
 
 
 
 
 
 
 
 
 
 
Trademarks
8
 
1,600

 
(50
)
 
1,550

 

 

 

Completed technology
13
 
73,900

 
(41,017
)
 
32,883

 
73,900

 
(35,486
)
 
38,414

Customer relationships
17
 
22,023

 
(7,250
)
 
14,773

 
19,666

 
(6,309
)
 
13,357

Licensing fees and other
11
 
32,384

 
(32,384
)
 

 
32,539

 
(31,176
)
 
1,363

Total intangible assets
 
 
$
558,958

 
$
(80,701
)
 
$
478,257

 
$
554,205

 
$
(72,971
)
 
$
481,234


As a result of acquisitions completed during the year ended December 31, 2018, the Company recorded additions to identifiable intangible assets including indefinite-lived trademarks, amortizing trademarks and customer relationships of $1.0 million, $1.6 million and $2.7 million, respectively (Note 22). The Company expects to amortize the acquired amortizing trademarks and customer relationships over an eight year period.
During the years ended December 31, 2018, 2017 and 2016, no impairment charges were recorded to goodwill or indefinite-lived intangible assets.
Identifiable intangible asset amortization expense was $8.0 million, $9.3 million and $9.3 million for the years ended December 31, 2018, 2017 and 2016, respectively, of which $1.4 million, $2.7 million and $2.7 million associated with certain licensing fees was included in cost of goods sold for the years ended December 31, 2018, 2017 and 2016, respectively.
Identifiable intangible asset amortization expense for each of the next five fiscal years and beyond is expected to be as follows:
(in thousands)
 
Year ending December 31,
 
2019
$
6,789

2020
6,446

2021
6,446

2022
6,446

2023
6,446

Thereafter
16,633

Total
$
49,206

v3.10.0.1
Product Warranty
12 Months Ended
Dec. 31, 2018
Product Warranties Disclosures [Abstract]  
Product Warranty
Product Warranty
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
 
Year ended December 31, 
(in thousands)
2018
 
2017
 
2016
Balance at beginning of period
$
3,823

 
$
3,526

 
$
3,345

Provision
5,909

 
5,801

 
6,200

Claims paid/costs incurred
(6,315
)
 
(5,653
)
 
(5,940
)
Foreign currency translation
(86
)
 
149

 
(79
)
Balance at end of period
$
3,331

 
$
3,823

 
$
3,526

v3.10.0.1
Related Party Transactions
12 Months Ended
Dec. 31, 2018
Related Party Transactions [Abstract]  
Related Party Transactions
Related Party Transactions
Other current assets includes receivables from related parties of $0.5 million as of December 31, 2017. Prior to its initial public offering, the Company incurred interest expense payable to related parties on its outstanding convertible notes (Note 10) and bonds with common stock warrants (Note 11). The related party interest expense totaled $28.1 million for the year ended December 31, 2016.
v3.10.0.1
Debt and Financing Arrangements
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Debt and Financing Arrangements
Debt and Financing Arrangements
The Company’s debt and long-term capital lease obligations were as follows:
(in thousands)
December 31,
2018
 
December 31,
2017
Term loan A facility
$
330,469

 
$
351,563

Delayed draw term loan A facility
54,375

 
95,000

Revolving credit facility

 
10,066

Other short-term borrowings
920

 
10,298

Capital lease obligations

 
22

Debt issuance costs
(2,266
)
 
(2,896
)
Total
383,498

 
464,053

Less: short-term debt and current portion of long-term debt
36,545

 
47,083

Total long-term debt and capital lease obligations
$
346,953

 
$
416,970


The debt issuance costs of $2.3 million and $2.9 million as of December 31, 2018 and 2017, respectively, relate to the term loan A facility and delayed draw term loan A facility.
Senior Secured Credit Facility
On April 27, 2016, the Company entered into a senior secured credit facilities agreement arranged by Wells Fargo Bank, National Association which provided for (i) a $275.0 million multi‑currency revolving credit facility, initially including a $20.0 million letter of credit sublimit, a $25.0 million swing line sublimit, a C$25.0 million sublimit for Acushnet Canada, Inc., a £20.0 million sublimit for Acushnet Europe Limited and an alternative currency sublimit of $100.0 million for borrowings in Canadian dollars, euros, pounds sterling and Japanese yen (“revolving credit facility”), (ii) a $375.0 million term loan A facility and (iii) a $100.0 million delayed draw term loan A facility. The credit agreement allows for the incurrence of additional term loans or increases in the revolving credit facility in an aggregate principal amount not to exceed (i) $200.0 million plus (ii) an unlimited amount so long as the net average secured leverage ratio (as defined in the credit agreement) does not exceed 2.00:1.00 on a pro forma basis. On August 9, 2017, the senior secured credit facilities agreement was amended to increase the letter of credit sublimit to $25.0 million, to increase the sublimit for Acushnet Canada Inc. to C$35.0 million and to increase the sublimit for Acushnet Europe Limited to £30.0 million. The revolving credit facility and term loan facilities mature on July 28, 2021 and are secured by certain assets, including inventory, accounts receivable, fixed assets and intangible assets of the Company.
The credit agreement requires the Company to prepay outstanding term loans, subject to certain exceptions, with:
100% of the net cash proceeds of all non‑ordinary course asset sales or other dispositions of property by the Company and its restricted subsidiaries (including insurance and condemnation proceeds, subject to de minimis thresholds), (1) if the Company does not reinvest those net cash proceeds in assets to be used in its business or to make certain other permitted investments, within 12 months of the receipt of such net cash proceeds or (2) if the Company commits to reinvest such net cash proceeds within 12 months of the receipt thereof, but does not reinvest such net cash proceeds within 18 months of the receipt thereof; and
100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than debt permitted under the credit agreement.
The foregoing mandatory prepayments are used to reduce the installments of principal in such order: first, to prepay outstanding loans under the term loan A facility, the delayed draw term loan A facility and any incremental term loans on a pro rata basis in direct order of maturity and second, to prepay outstanding loans under the revolving credit facility.
The Company may voluntarily repay outstanding loans under the credit agreement at any time without premium or penalty, other than customary “breakage” costs with respect to Eurodollar loans. Any optional prepayment of term loans will be applied as directed by the Company.
The Company is required to make principal payments on the loans under the term loan facilities in quarterly installments in aggregate annual amounts equal to (i) 5.00% of the original principal amount for the first and second year after July 28, 2016, (ii) 7.50% of the original principal amount for the third and fourth year after July 28, 2016 and (iii) 10.0% of the original principal amount for the fifth year after July 28, 2016. The remaining outstanding amount is payable on July 28, 2021, the maturity date for the term loan facilities. Principal amounts outstanding under the revolving credit facility will be due and payable in full on July 28, 2021, the maturity date for the revolving credit facility.
The applicable interest rate for the Canadian borrowings under the senior secured credit facility is based on the Canadian Dollar Offered Rate (“CDOR”) plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest for the swing line sublimit is the highest of (a) Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one-month London Interbank Offered Rate (“LIBOR”) rate plus 1.00% plus a margin ranging from 0.25% to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest rate for all remaining borrowings under the senior secured credit facilities is LIBOR plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement or the highest of (a) the Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one month LIBOR rate plus 1.00% plus a margin ranging from 0.25% to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement.
Interest on borrowings under the credit agreement is payable (1) on the last day of any interest period with respect to Eurodollar borrowings with an applicable interest period of three months or less, (2) every three months with respect to Eurodollar borrowings with an interest period of greater than three months or (3) on the last business day of each March, June, September and December with respect to base rate borrowings and swing line borrowings. In addition, beginning with the date of the initial funding under the credit agreement, the Company is required to pay a commitment fee on any unutilized commitments under the revolving credit facility and the new delayed draw term loan A facility. The initial commitment fee rate is 0.30% per annum and ranges from 0.20% to 0.35% based upon a leverage‑based pricing grid. The Company is also required to pay customary letter of credit fees.
The Company’s credit agreement was signed and became effective on April 27, 2016 and initial funding under the credit agreement occurred on July 28, 2016. The proceeds of the $375.0 million term loan A facility, borrowings of C$4.0 million (equivalent to approximately $3.0 million) under the revolving credit facility and cash on hand of $23.6 million were used to repay all amounts outstanding under the secured floating rate notes and certain former working credit facilities. The secured floating rate notes, certain former working credit facilities and the former senior revolving credit facility were terminated.
During the first quarter of 2017, the Company drew down $100.0 million on the delayed draw term loan A facility and $47.8 million under the revolving credit facility to substantially fund the equity appreciation rights (“EAR") plan payout (Note 17).
The interest rate applicable to the term loan A facility and delayed draw term loan A facility as of December 31, 2018 and 2017 was 4.02% and 3.32%, respectively. The weighted average interest rate applicable to the outstanding borrowings under the revolving credit facility was 4.44% as of December 31, 2017.
A change of control is an event of default under the credit agreement which could result in the acceleration of all outstanding indebtedness and the termination of all commitments under the credit agreement and would allow the lenders under the credit agreement to enforce their rights with respect to the collateral granted. A change of control occurs if any person (other than certain permitted parties, including Fila Korea) becomes the beneficial owner of 35% or more of the outstanding common stock of the Company.  On September 22, 2017, Magnus entered into a loan agreement (the “New Magnus Loan Agreement”) with certain Korean financial institutions (the “New Magnus Lenders”) which provides for (i) three year term loans in an aggregate amount of Korean Won 399.2 billion (equivalent to approximately $358.1 million, using an exchange rate of $1.00 = Korean Won 1,114.76 as of December 31, 2018) (the “New Magnus Term Loans”) and (ii) a revolving credit loan of Korean Won 10.0 billion (equivalent to approximately $9.0 million, using an exchange rate of $1.00 = Korean Won 1,114.76 as of December 31, 2018) (the “New Magnus Revolving Loan” and, together with the New Magnus Term Loans, the “New Magnus Loans”). The New Magnus Loans are secured by a pledge on all of the Company's common stock owned by Magnus, which consists of 39,345,151 shares (the “Magnus Shares”), or 52.6% of the Company's outstanding common stock as of December 31, 2018.  Under the New Magnus Loan Agreement, Magnus is required to maintain a specified Loan-to-Value ratio (“LTV Ratio”).  If the LTV Ratio exceeds 75%, Magnus will be in breach of the New Magnus Loan agreement. If Magnus does not cure the breach in 60 days, the lenders will have a right to accelerate the maturity of the New Magnus Loan. If Magnus fails to pay the amount due on the New Magnus Loan at maturity or upon acceleration, the lenders can foreclose on the pledged shares of the Company’s common stock, which may result in the sale of up to 52.6% of the Company’s common stock as of December 31, 2018
The credit agreement contains a number of covenants that, among other things, restrict the ability of the U.S. Borrower and its restricted subsidiaries to (subject to certain exceptions), incur, assume, or permit to exist additional indebtedness or guarantees; incur liens; make investments and loans; pay dividends, make payments, or redeem or repurchase capital stock or make prepayments, repurchases or redemptions of certain indebtedness; engage in mergers, liquidations, dissolutions, asset sales, and other dispositions (including sale leaseback transactions); amend or otherwise alter terms of certain indebtedness or certain other agreements; enter into agreements limiting subsidiary distributions or containing negative pledge clauses; engage in certain transactions with affiliates; alter the nature of the business that it conducts or change its fiscal year or accounting practices. Certain exceptions to these covenants are determined based on ratios that are calculated in part using the calculation of Adjusted EBITDA. The credit agreement also restricts the ability of Acushnet Holdings Corp. to engage in certain mergers or consolidations or engage in any activities other than permitted activities. The Company’s credit agreement contains certain customary affirmative and restrictive covenants, including, among others, financial covenants based on the Company’s leverage and interest coverage ratios. The credit agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable.
On June 7, 2018, Acushnet Company, Acushnet Canada Inc. and Acushnet Europe Limited, as borrowers, and the Company and certain other subsidiaries of the Company, as guarantors, entered into an amendment with Wells Fargo Bank, National Association and certain other lenders to the Company’s senior secured credit facilities agreement. Pursuant to the amendment, the restrictive covenant governing the payment of dividends, the making of certain other payments and the redemption or repurchase of capital stock was amended to permit an additional $150.0 million of such payments, redemptions and/or repurchases, subject to certain conditions. In connection with amending the senior secured credit facilities, the Company incurred approximately $0.4 million in fees and expenses, which were recorded as debt issuance costs and will be recognized as interest expense over the term of the senior secured credit facilities.
As of December 31, 2018, the Company was in compliance with all covenants under the credit agreement.
As of December 31, 2018, the Company had available borrowings under its revolving credit facility of $263.6 million after giving effect to $11.4 million of outstanding letters of credit.
Convertible Notes
Prior to the initial public offering, the Company had outstanding convertible notes with an aggregate principal amount of $362.5 million.  All outstanding convertible notes were converted into common stock in conjunction with the Company’s initial public offering (Note 1). Upon conversion, all accrued but unpaid interest on the principal of the convertible notes was paid to each holder of the convertible notes. The Company recorded interest expense related to the convertible notes of $22.6 million during the year ended December 31, 2016
Secured Floating Rate Notes
On July 28, 2016, outstanding borrowings under the secured floating rate notes of $375.0 million were repaid in full using the proceeds from the senior secured credit facility and the secured floating rate notes were terminated.
Senior Revolving and Term Loan Facilities
As of June 30, 2016, the Company had repaid all amounts outstanding under the senior revolving and term loan facilities and the facilities were terminated.
Other Short-Term Borrowings
The Company has certain unsecured facilities available through its subsidiaries. The weighted average interest rate applicable to the outstanding borrowings was 3.25% and 0.73% as of December 31, 2018 and 2017, respectively. As of December 31, 2018, the Company had available borrowings remaining under these local credit facilities of $62.6 million.
Letters of Credit
As of December 31, 2018 and 2017, there were outstanding letters of credit related to agreements, including the Company's Senior Secured Credit Facility, totaling $15.5 million and $14.3 million, respectively, of which $12.4 million and $11.2 million was secured, respectively. These agreements provided a maximum commitment for letters of credit of $29.2 million as of both December 31, 2018 and 2017.
Payments of Debt Obligations due by Period
As of December 31, 2018, principal payments due on outstanding long-term debt obligations, excluding capital leases, were as follows:
(in thousands)
 
Year ending December 31,
 
2019
$
35,625

2020
38,594

2021
310,625

2022

2023

Thereafter

Total
$
384,844

v3.10.0.1
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Company principally uses derivative financial instruments to reduce the impact of changes in foreign currency exchange rates and interest rate fluctuations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. Additionally, prior to the exercise of the final annual call option by Fila Korea in July 2016, the Company had outstanding bonds with common stock warrants for the purchase of the Company’s common stock. The Company does not enter into derivative financial instruments contracts for trading or speculative purposes.
Foreign Exchange Derivative Instruments
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to hedge currency fluctuations for transactions denominated in a foreign currency, thereby limiting currency risk that would otherwise result from changes in exchange rates. The periods of the foreign exchange forward contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the Euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of December 31, 2018 and 2017 was $312.8 million and $278.9 million, respectively.
The Company also enters into foreign exchange forward contracts to mitigate the change in fair value of specific assets and liabilities which do not qualify as hedging instruments under U.S. GAAP. Accordingly, these undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense, together with the re-measurement gain or loss from the hedged asset or liability. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of December 31, 2018 and 2017.
Interest Rate Derivative Instruments
During 2018, the Company entered into interest rate swap contracts to reduce the impact of variability in interest rates. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its variable rate debt to fixed rate debt. The interest rate swap contracts are accounted for as cash flow hedges. As of December 31, 2018, the notional value of the Company's outstanding interest rate swap contracts was $185.0 million. As of December 31, 2017, there were no outstanding interest rate swap contracts.
Impact on Financial Statements
The fair value of hedge instruments recognized on the consolidated balance sheets was as follows:
(in thousands)
 
 
 
December 31,
2018
 
December 31,
2017
Balance Sheet Location
 
Hedge Instrument Type
 
 
Other current assets
 
Foreign exchange forward
 
$
6,116

 
$
4,675

Other noncurrent assets
 
Foreign exchange forward
 
1,015

 
562

Accrued expenses and other liabilities
 
Foreign exchange forward
 
578

 
6,360

 
 
Interest rate swap
 
526

 

Other noncurrent liabilities
 
Foreign exchange forward
 
161

 
276

 
 
Interest rate swap
 
925

 


The hedge instrument gain (loss) recognized in accumulated other comprehensive loss, net of tax was as follows:
 
Gain (Loss) Recognized in
Other Comprehensive Loss
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Type of hedge
 
 
 
 
 
Foreign exchange forward
$
8,148

 
$
(15,558
)
 
$
7,014

Interest rate swap
(1,926
)
 

 

 
$
6,222

 
$
(15,558
)
 
$
7,014

 
Gains and losses on derivative instruments designated as cash flow hedges are reclassified from other comprehensive income (loss) at the time the forecasted transaction impacts the income statement. Based on the current valuation, the Company expects to reclassify a net gain of $6.0 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax into cost of goods sold and a net loss of $0.5 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax into interest expense, net during the next 12 months (Note 19).
The hedge instrument gain (loss) recognized on the consolidated statements of operations was as follows:
 
Gain (Loss) Recognized in
Statement of Operations
 
Year ended December 31,
(in thousands)
2018
 
2017
 
2016
Location of gain (loss) in statement of operations
 
 
 
 
 
Cost of goods sold
$
(1,410
)
 
$
1,329

 
$
5,194

Selling, general and administrative expense
1,665

 
(2,732
)
 
(917
)
Interest expense, net
(476
)
 

 

 
$
(221
)
 
$
(1,403
)
 
$
4,277


Credit Risk
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.
Bonds with Common Stock Warrants
Prior to the exercise of the final annual call option by Fila Korea in July 2016, the Company had outstanding bonds with common stock warrants for the purchase of the Company’s common stock at an exercise price of $11.11 per share. The Company classified the warrants to purchase common stock as a liability on its consolidated balance sheet as the warrants were free‑standing financial instruments that could result in the issuance of a variable number of the Company’s common shares. The warrants were initially recorded at fair value on grant date, and were subsequently re‑measured to fair value at each reporting date. The Company categorized the common stock warrants derivative liability as Level 3 as there were significant unobservable inputs used in the underlying valuations. Changes in the fair value of the common stock warrants were recognized as other expense, net on the consolidated statement of operations (Note 19).
In July 2016, Fila Korea exercised its annual call option to purchase common stock warrants held by the holders of the bonds and exercised such warrants at the exercise price of $11.11 per share, or $34.5 million in the aggregate. The Company used the proceeds received from Fila Korea’s exercise of the common stock warrants to redeem the outstanding bonds payable.
v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis were as follows:
 
Fair Value Measurements as of
 
 
 
December 31, 2018 using:
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
Rabbi trust
$
8,415

 
$

 
$

 
Other current assets
Foreign exchange derivative instruments

 
6,116

 

 
Other current assets
Deferred compensation program assets
1,222

 

 

 
Other noncurrent assets
Foreign exchange derivative instruments

 
1,015

 

 
Other noncurrent assets
Total assets
$
9,637

 
$
7,131

 
$

 
 
Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative instruments
$

 
$
578

 
$

 
Accrued expenses and other liabilities
Interest rate swap derivative instrument

 
526

 

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
1,222

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments

 
161

 

 
Other noncurrent liabilities
Interest rate swap derivative instrument

 
925

 

 
Other noncurrent liabilities
Total liabilities
$
1,222

 
$
2,190

 
$

 
 
 
Fair Value Measurements as of
 
 
 
December 31, 2017 using:
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
Rabbi trust
$
10,637

 
$

 
$

 
Other current assets
Foreign exchange derivative instruments

 
4,675

 

 
Other current assets
Deferred compensation program assets
1,866

 

 

 
Other noncurrent assets
Foreign exchange derivative instruments

 
562

 

 
Other noncurrent assets
Total assets
$
12,503

 
$
5,237

 
$

 
 
Liabilities
 
 
 
 
 
 
 
Foreign exchange derivative instruments
$

 
$
6,360

 
$

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
1,866

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments

 
276

 

 
Other noncurrent liabilities
Total liabilities
$
1,866

 
$
6,636

 
$

 
 

During the years ended December 31, 2018 and 2017, there were no transfers between Level 1, Level 2 and Level 3.
Rabbi trust assets are used to fund certain retirement obligations of the Company. The assets underlying the Rabbi trust are equity and fixed income exchange‑traded funds.
Deferred compensation program assets and liabilities represent a program where select employees can defer compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all employee compensation deferrals and provided for the distribution of all previously deferred employee compensation. The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29, 2011.
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to hedge currency fluctuations for transactions denominated in a foreign currency (Note 11). The Company uses the mid‑price of foreign exchange forward rates as of the close of business on the valuation date to value each foreign exchange forward contract at each reporting period.
Interest rate derivative instruments are contracts used to hedge the interest rate fluctuations of the Company's variable rate debt (Note 11). The valuation for the interest rate swap is calculated as the net of the discounted future cash flows of the pay and receive legs of the swap. Mid-market interest rates on the valuation date are used to create the forward curve for floating legs and discount curve.
v3.10.0.1
Pension and Other Postretirement Benefits
12 Months Ended
Dec. 31, 2018
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits
Pension and Other Postretirement Benefits
The Company has various pension and post-employment plans which provide for payment of benefits to certain eligible employees, mainly commencing between the ages of 50 and 65, and for payment of certain disability benefits. After meeting certain qualifications, eligible employees acquire a vested right to future benefits. The benefits payable under the plans are generally determined on the basis of an employee's length of service and/or earnings. Employer contributions to the plans are made, as necessary, to ensure legal funding requirements are satisfied. The Company may make contributions in excess of the legal funding requirements.
The Company provides postretirement healthcare benefits to certain retirees. Many employees and retirees outside of the United States are covered by government sponsored healthcare programs.
The following table presents the change in benefit obligation, change in plan assets and funded status for the Company's defined benefit and postretirement benefit plans for the year ended December 31, 2018:
(in thousands)
Pension
Benefits
(Underfunded)
 
Pension
Benefits
(Overfunded)
 
Postretirement
Benefits
Change in projected benefit obligation ("PBO")
 
 
 
 
 
Benefit obligation at December 31, 2017
$
316,882

 
$
35,468

 
$
16,052

Service cost
9,067

 

 
657

Interest cost
11,040

 
857

 
490

Actuarial gain
(22,436
)
 
(5,255
)
 
(1,600
)
Curtailments
(177
)
 

 

Settlements
(36,244
)
 
(3,507
)
 

Plan amendments

 
285

 

Participants’ contributions

 

 
378

Benefit payments
(2,990
)
 
(580
)
 
(1,565
)
Foreign currency translation
(321
)
 
(1,639
)
 

Projected benefit obligation at December 31, 2018
274,821

 
25,629

 
14,412

Accumulated benefit obligation at December 31, 2018
240,270

 
23,821

 
14,412

Change in plan assets

 

 
 
Fair value of plan assets at December 31, 2017
183,093